Best Sector ETFs For October: A Taste For Risk

Monday marks the start of the October trading month, and if historical trends hold true to form, the start of October could be good news for investors. Over the past two decades, the S&P 500 averaged October gains of 1.9 percent, making the tenth month of the year one of the best for the benchmark U.S. equity index. 

As is the case with the other 11 months, October brings with it sector-level opportunity for tactical investors. On a historical basis, higher beta sectors perform well in October while some defensive groups leave something to be desired.

Some of the following sector exchange-traded funds have a tendency to deliver for investors in October while some of the others can be disappointments.

Talking Tech

Since 1999, the first full year of trading for the sector SPDR ETFs, the best performer in October has been the Technology Select Sector SPDR XLK. XLK, the largest technology ETF by assets, has averaged an October gain of more than 3 percent since 1999, according to CXO Advisory data.

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Up 21.4 percent year to date, XLK is already 2017's best-performing sector SPDR ETF. XLK provides exposure to the following tech industries: technology hardware, storage, and peripherals; software; diversified telecommunication services; communications equipment; semiconductors and semiconductor equipment; internet softwareand services; IT services; electronic equipment, instruments and components; and wireless telecommunication services, according to the issuer.

The ETF devotes about a quarter of its weight to Apple Inc. AAPL and Microsoft Corporation MSFT.

Consumer Call

With the start of the fourth quarter, markets are apt to pay renewed attention to consumer trends. Keeping that theme, the Consumer Discretionary Select Sector SPDR XLY is October's second-best sector SPDR ETF with an average gain of 2.5 percent, according to CXO data.

XLY is up 10.2 percent year to date, due in large part to the ETF's 14.8 percent weight to shares of Amazon.com, Inc. AMZN. That is double XLY's weight to its second-largest holding.

In terms of sector ETFs to avoid in October, “avoid” may be too harsh a word, but there are some laggard sectors in the tenth month of the year. For example, the Utilities Select Sector SPDR XLU is usually the worst-performing sector SPDR ETF in October, although it has averaged positive returns in October since 1999, according to CXO.

The same sentiment can be applied to the Health Care Select Sector SPDR XLV, which also generates modest October returns. XLV is the second-best SPDR year to date behind XLK.